EPA Issues Proposed Rule for HFC Phasedown Under 2020 AIM Act
Date: May 25, 2021
On May 19, 2021, EPA published in the Federal Register its proposed rule addressing the reduction of hydrofluorocarbons (HFCs) in the United States. With the publication of “Phasedown of Hydrofluorocarbons: Establishing the Allowance Allocation and Trading Program Under the American Innovation and Manufacturing Act” (“Proposed Rule”), EPA is fulfilling its mandate under the 2020 American Innovation and Manufacturing Act (“AIM Act”) to issue a final HFC phasedown regulation by September 3, 2021. This is the first of likely several rules that EPA will publish pursuant to the AIM Act, with additional rules to follow in the next several years to implement additional aspects of the AIM Act requirements.
Congress passed the AIM Act on December 27, 2020 as part of the Consolidated Appropriations Act, 2021 (Pub. L. 116-260). The AIM Act directs EPA to address HFCs in three ways: (1) phase down HFC production and consumption by 85% over a 15-year period, from 2021 (baseline levels) through 2036; (2) maximize HFC reclamation and minimize HFC releases; and (3) facilitate a transition to next-generation technologies through sector-based restrictions. The first goal, the HFC phasedown, is the subject of the Proposed Rule, while EPA will issue subsequent proposed rules to further implement aspects of the phasedown as well as the separate AIM Act goals.
One of the cornerstones of the AIM Act and Proposed Rule is the creation of an HFC allowance and trading program to meet the phasedown goals. The Aim Act defines the types of HFCs subject to the Act and future EPA regulations by listing 18 separate HFC compounds, defined as the “regulated substances.” Congress assigned a CO2 equivalent (also referred to as the “exchange value”) for each listed HFC using known international standards, which is important because the AIM Act and Proposed Rule will set a total HFC baseline using past years’ HFC figures of each regulated substance and its corresponding exchange value.
The AIM Act also includes a five-year state preemption provision that prohibits states from enforcing their own HFC laws or administrative actions restricting the management or use of the listed HFCs within that exclusive use for five years from enactment of the Act. This was an important element of the AIM Act, as many states were already regulated, or planning to regulate, HFCs in a similar manner.
EPA’s Proposed Rule
The Proposed Rule provides details for how EPA plans to implement the AIM Act. Critical elements of the Proposed Rule include the proposed process to create the 2021 HFC “baseline” (upon which the future phasedown milestones will be compared), allocation of mandatory HFC allowances for six specific industries as provided in the AIM Act, and the process for transferring allowances between entities once allocations are made.
Under the AIM Act, and the Proposed Rule, the phasedown schedule calls for both production and consumption reductions of 90% of the baselines between 2020-2023; 60% of the baselines between 2024-2028; 30% of the baselines between 2029-2033; 20% of the baselines between 2034-2035; and 15% of the baselines in 2036 and beyond. The Proposed Rule also contains provisions for enforcement, compliance, EPA audits, reporting and record-keeping requirements.
Entities should evaluate the Proposed Rule to determine whether they may fall within one of the mandatory allocation categories, as well as for potential impacts to their businesses based on usage of HFCs in manufacturing processes and products. EPA is accepting written public comments until July 6, 2021, and while it calls out specific aspects of the Proposed Rule on which it seeks comments, EPA will accept comments on any portion of the Proposed Rule.
Finally, it is noteworthy that the Proposed Rule contains a specific section titled “How is EPA considering environmental justice?” EPA defines “environmental justice” as the “fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation and enforcement of environmental laws, regulations and policies.” While environmental justice has been an EPA topic of interest for many years, the Biden Administration has made this a key environmental policy goal, including pursuant to the Biden Executive Order 14008, “Tackling the Climate Crisis at Home and Abroad” (January 27, 2021). EPA will likely include environmental justice considerations in future rulemakings as well as other administrative issues such as guidance documents and enforcement/settlement negotiations.
Reduction of HFC production and consumption in the United States has been on EPA’s radar for many years, but with passage of the AIM Act and promulgation of the Proposed Rule in 2021, EPA is now proceeding with haste toward tangible phasedown requirements. As the phasedown proceeds, impacted entities should follow the effects on the HFC market, including potential increases in cost of various HFCs, the development of HFC alternatives or replacements (or alternatives with lower Global Warming Potential exchange values) and future EPA rulemaking and possibly further Congressional action.
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